5. Create SLAT/ILITs
Years ago, we created plain vanilla life insurance trusts and remarkably, we're actually current on all Crummey powers. More recently, we created spousal lifetime access trusts (SLATs) for state estate tax, although the New Jersey repeal might make that academic, (New Jersey, my home state, has repealed its estate tax effective Jan. 1, 2018, and the federal estate tax is likely to get “Trumped”) and asset protection purposes. Yes, they were structured in the manner we suggest to clients: grantor trusts, trust friendly jurisdictions, directed, dynastic, generation-skipping transfer tax exempt, gift tax returns filed meeting the adequate disclosure rules, etc. Unfortunately, the SLATs didn’t contemplate owning life insurance. I’ve wanted to restructure the SLATs so that they’re more conducive to life insurance ownership and then transfer (likely by sale) from the grantor irrevocable life insurance trusts (ILITs) to the grantor SLATs, the life insurance we’ll retain after the termination of the no-longer-needed term policies noted above. This transfer will avoid the need for future annual gifts or Crummey notices, as the earnings in the SLATs will cover the premiums. It will also eliminate two trusts simplifying our planning and what the children will eventually have to deal with. Holding life insurance in the SLATs will also help address the mortality risk of premature death of my wife or me, a risk/issue that clients are similarly encouraged to invest in. The SLATs are, in my view, a more robust incarnation of the traditional ILIT being repurposed to provide asset protection benefits with perhaps less risk than self-settled trusts, dynastic planning for future generations, institutional trustee protection for the decline in cognitive ability that age might bring, protection from elder financial abuse and more. Hence, I’ve dubbed this expansion of the traditional ILIT, “MILITs,” for multi-purpose ILITs. It’s also enjoyable to have another acronym to bounce around in casual cocktail conversations.